Correlation Between Fifth Third and Central Pacific

Can any of the company-specific risk be diversified away by investing in both Fifth Third and Central Pacific at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fifth Third and Central Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fifth Third Bancorp and Central Pacific Financial, you can compare the effects of market volatilities on Fifth Third and Central Pacific and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fifth Third with a short position of Central Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Central Pacific.

Diversification Opportunities for Fifth Third and Central Pacific

0.94

Correlation Coefficient

Fifth Third  Central Pacific

Almost no diversification

The 3 months correlation between Fifth and Central is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Central Pacific Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Pacific Financial and Fifth Third is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fifth Third Bancorp are associated (or correlated) with Central Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Pacific Financial has no effect on the direction of Fifth Third i.e., Fifth Third and Central Pacific go up and down completely randomly.

Pair Corralation between Fifth Third and Central Pacific

Given the investment horizon of 90 days Fifth Third is expected to generate 1.18 times less return on investment than Central Pacific. But when comparing it to its historical volatility, Fifth Third Bancorp is 1.72 times less risky than Central Pacific. It trades about 0.14 of its potential returns per unit of risk. Central Pacific Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,731  in Central Pacific Financial on September 4, 2024 and sell it today you would earn a total of  410.00  from holding Central Pacific Financial or generate 15.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Fifth Third Bancorp  vs.  Central Pacific Financial

Fifth Third Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Fifth Third sustained solid returns over the last few months and may actually be approaching a breakup point.

Central Pacific Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Pacific Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Central Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fifth Third and Central Pacific

The main advantage of trading using opposite Fifth Third and Central Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, Central Pacific can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Central Pacific will offset losses from the drop in Central Pacific's long position.

The idea behind Fifth Third Bancorp and Central Pacific Financial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.